Leveraging IT for Strategic Competitive Advantage: Moving IT from Cost Center to Business Partner

During its heyday in the early 1990s, Business Process Reengineering (BPR) brought about a significant shift in IT thinking. At a time when IT was perceived strictly as a cost center, BPR illustrated how to leverage IT for the business: align IT with the organization’s vision and strategic direction, utilize technology to enable the underlying business processes, and seek the greatest ROI by focusing on activities that directly impact the customer. It was not for the meek, since for established businesses, BPR was intended to answer the question, “What is the one thing about my business that is seemingly impossible to change, but if I could, would fundamentally change my position in the market?”

BPR was incredibly disruptive and success could not be assumed. But companies whose turnaround stories grabbed the headlines were the envy of their industry. Texas Instruments alone saved $21 Million annually through one BPR initiative, $30 Million annually through another, and increased factory throughput 1000% through a third.

It didn’t take long for IT executives to follow industry leaders, integrating their systems with those of other companies directly involved in their value chain. The rewards were high enough to justify the costly integrations – until executives were confronted with the need to swap out one vendor in the value chain for another. In the years since BPR was first introduced, most enterprise applications vendors have recognized the missed opportunity and have created open access to their application’s program interface (API) to facilitate interactions between software programs.

Today, it is common practice for companies to define their business as a set of internal core competencies and multiple outsourced partners. The role of IT has evolved as well, to focus on sustaining a best-in-class network of partners and suppliers, and maintaining the technical and operational flexibility to swap partners and suppliers as needed.

But there is a problem with this approach if taken too far. Many companies today value technical nimbleness over leveraging technology to enable a strategic foundation. When there is no foundation, technology becomes a commodity and cannot promote differentiation. And without differentiation, a company is offering little of real value to customers. A lack of underlying strategic differentiation is one reason why so we see so many companies appear and disappear so rapidly.

Strategic positioning is the creation of a unique value proposition and it requires defining several key aspects about a business:

• a unique market niche

• the key activities a company will perform to differentiate itself

• how these key activities will relate to one another

• how they will be executed

While operational effectiveness is about performing the same activities better than rivals, strategy is about performing different activities, or similar activities in different ways, which together deliver a unique value to customers. What catapulted FedEx to phenomenal success was not its package-tracking technology, airline fleet or the fact that all packages went through a central processing center. It was that combined, these activities allowed FedEx to guarantee overnight delivery.

How strategic activities interrelate is also fundamental to a sustainable competitive advantage. First, it would be extremely difficult for a competitor to outperform a mix of interrelated activities. Second, bottlenecks in one activity of an interlocked set create real pressure to improve all activities in the chain. And third, it is expertise in delivering a mix of activities that creates real economic value and leads to industry dominance. Dell is the perfect example.

So, how can you leverage your own IT organization for optimal strategic advantage?

1. Identify the few key activities that differentiate you from the competition and form the strategy behind your organization’s vision. Understand how they must interrelate and then focus on them.
2. Define the best way to deliver on these activities. This is the important work of establishing business processes that are synergistic with the technology you have in place or plan to use. According to the Gartner Group, the most common reason why 70 percent of IT projects fail or fail to meet expectations is not the technology, but the lack of compatibility between the technology and how it is being used. Also keep in mind that best-in-class business process rules, especially those that start and end with the customer, are your responsibility, not your integrator’s. The importance of getting this step right cannot be overstated.
3. Make technology investments based on the solution’s capabilities in your key strategic activities. This may mean spending less in non-critical areas in order to afford best-of-breed solutions in each key strategic function. View enterprise-wide do-it-all solutions suspiciously, unless you can invest heavily in customization.
4. Integrate the entire value chain and maintain it rigorously. The last thing you want is a manual bottleneck at a feeder into one of your key strategic activities.
   You now have created an interlocked set of business activities that support your key strategic positioning. Be passionate about continuously improving it. If you stay focused on your key strategic activities, the question will never be whether a business process improvement will add value, but rather which ones will bring about the greatest ROI.

Leveraging open API’s to swap suppliers is an unavoidable part of doing business today. But in and of itself, it is not a strategy for competitive advantage because it does not define a unique value proposition. Staying focused on your handful key strategic activities puts you one step closer to the same success trajectory that TI, FedEx, Southwest Airlines, Dell, Intel, McDonald’s, and many others have proven really works: An enduring vision and strategy, supported by best-in-class business processes and technologies, are nearly impossible for competitors to touch.